SAS (Vic) Pty Ltd v Urban Ecological Systems Ltd (No 2)
[2021] VCC 115
•18 February 2021
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
Case No. CI-20-01357
| SAS (VIC) PTY LTD (ACN 606 188 541) | Plaintiff |
| v | |
| URBAN ECOLOGICAL SYSTEMS LTD (ACN 113 695 837) | Defendant |
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JUDGE: | HIS HONOUR JUDGE COSGRAVE | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | The parties provided written submissions to the court on 8 February 2021 and 10 February 2021. | |
DATE OF JUDGMENT: | 18 February 2021 | |
CASE MAY BE CITED AS: | SAS (Vic) Pty Ltd v Urban Ecological Systems Ltd (No 2) | |
MEDIUM NEUTRAL CITATION: | [2021] VCC 115 | |
REASONS FOR JUDGMENT
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Subject:Costs
Catchwords: Indemnity costs – where plaintiff has arguable basis for claim - rule 63A.04
Legislation Cited: County Court Civil Procedure Rules 2018 (Vic)
Cases Cited:BHP Billiton Olympic Dam Corp Pty Ltd v Steuler Industriewerke GmbH (No 3) [2012] VSC 414; Chen v Chan [2009] VSCA 233
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr D.F. McAloon | B2B Lawyers |
| For the Defendant | Ms S.C.B. Brenker | Holding Redlich |
HIS HONOUR:
Background
1On 29 January 2021, I handed down reasons for judgment in this matter (“the principal reasons”). The main question in the case was how a particular agreement should be interpreted – had SAS (Vic) Pty Ltd (“SAS”) satisfied certain terms of the agreement with the result that Urban Ecological Systems Ltd (“UESL”) was obliged to grant specific rights to SAS in the form of a long-term licence agreement in respect of Australia. I found that SAS had not satisfied the relevant preconditions and that, accordingly, UESL had no such obligation.
2I directed the parties to file written submissions regarding the form of final order and costs. These reasons assume familiarity with the principal reasons and adopt the same terminology.
Summary of parties’ positions
3UESL, as the successful party, seeks an order whereby SAS pays its costs of and incidental to the proceeding up to 8 July 2020 on a standard basis and, thereafter, on an indemnity basis. UESL relies upon a Calderbank offer made to SAS on 1 January 2020 to argue that indemnity costs are appropriate because the outcome of the trial was more beneficial for it than the settlement offer made to SAS.
4SAS contends that the court should award costs on a standard basis because there is no sufficient reason to justify an order for indemnity costs. In effect, SAS contends that it was justified in rejecting the offer from UESL.
Calderbank offer
5It was not disputed between the parties that, by email dated 1 July 2020, the solicitors for UESL sent a Calderbank offer to the solicitors for SAS. The relevant part of the letter read as follows:
“Our client denies that it is liable for the relief claimed by your client under the principal agreement, or at all. As outlined in our client’s defence, our client considers all allegations made against it in the Proceeding to be misconceived and/or made without basis. Each allegation can, and will be, vigorously defended.
In light of the above, we invite your client to discontinue the Proceeding on a ‘bear own costs’ basis (‘the offer’).
If the offer is not accepted or is allowed to lapse, and your client obtains a result less favourable than the offer against our client, we put you on notice that our client will produce this letter to the Court on the question of costs of the Proceeding.
In that event, our client will seek an order that your client pay its costs of and incidental to the Proceeding on an indemnity basis, in accordance with the principles established in the decisions of Calderbank v Calderbank [1975] 3 All ER 333 and Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435.
The Offer is open for acceptance in writing up to 4.00pm on Wednesday, 8 July 2020, (being seven days from the date of this letter), after which time it expires.
Our client’s rights are otherwise reserved.”
6SAS did not accept the offer from UESL but conducted the proceeding to judgment.
Principles regarding costs
7There are some well accepted legal principles with respect to the court’s powers regarding costs:
(a) the award of costs is within the discretion of the court;
(c) the discretion must be exercised judicially. It cannot be exercised arbitrarily or capriciously. Nor can it be exercised on grounds unconnected with the litigation or the circumstances leading up to the litigation;
(d) costs are compensatory in the sense that they are awarded to indemnify the successful party against the expense to which it has been put by reason of the legal proceedings. The aim of a costs order is not to punish the unsuccessful party;
(e) as a general rule, costs should follow the event with the result that, in the absence of special circumstances, a successful party should obtain its costs of the proceeding even if it fails to establish all heads of claim; and
(f) rule 63A.04 of the County Court Civil Procedure Rules 2018 (Vic) (“the Rules”) permits the court, in its discretion, to make an order not only as to a distinct question or issue in the pleading sense, but also to any part of the proceeding.[1]
[1]Chen v Chan [2009] VSCA 233 at [10].
8Further, there are some principles regarding Calderbank offers and their potential impact on an award of costs. The position with respect to Calderbank offers was conveniently summarised by Habersberger J in BHP Billiton Olympic Dam Corp Pty Ltd v Steuler Industriewerke GmbH (No 3),[2] where he said:[3]
[2][2012] VSC 414.
[3] Ibid [58].
“Steuler next based its claim for indemnity costs in respect of part of the proceedings on the existence of seven separate offers of settlement, some of which were made in accordance with the decision in Calderbank v Calderbank. There are a number of relevant principles regarding Calderbank offers of settlement which it is appropriate to note before examining each of the offers made by Steuler. The standard starting point for such an examination is the joint judgment of Warren CJ, Maxwell P and Harper AJA in Hazeldene’s Chicken Farm Pty Ld v Victorian Workcover Authority (No 2) (Hazeldene).
First, the fact that a less favourable result is achieved does not give rise to a presumption of a special costs order. The making of an offer and its rejection are “but two albeit important circumstances” to which the court will have regard in the exercise of its costs discretion.
Secondly, the competing policy objectives relevant to the exercise of the costs discretion are principally the desirability of promoting settlement and reducing litigation costs as against the undesirability of discouraging potential litigants from bringing their dispute to the courts.
Thirdly, the critical question is whether the rejection of the offer was unreasonable in the circumstances. As the Court of Appeal said in Hazeldene:
In our view, these competing considerations can be sufficiently accommodated by applying a test of (un)reasonableness. The critical question is whether the rejection of the offer was unreasonable in the circumstances. We see no justification for a more stringent test such as “manifestly” or “plainly” unreasonable.
Fourthly, a court considering submissions that the rejection of a Calderbank offer was unreasonable should ordinarily have regard at least to the following matters:
(a) the stage of the proceeding at which the offer was received;
(b) the time allowed for the offeree to consider the offer;
(c) the extent of the compromise offered;
(d) the offeree’s prospects of success, assessed as at the date of the offer;
(e) the clarity with which the terms of the offer were expressed; and
(f) whether the offer foreshadowed an application for indemnity costs in the event of the offeree rejecting it.
Fifthly, as the determination of whether it was unreasonable for the offeree to have rejected the offer is made “as at the time, or within a reasonably short time after, the offer” was made, the court should not too readily embrace submissions that it was inevitable that the proceedings would fail. As Hamilton J put it in Grynberg v Muller:
These submissions focus the bright light of hindsight. Hindsight sings a siren song of which Judges must be cautious …
Sixthly, the onus lies on the offeror to demonstrate the unreasonableness of the offeree’s rejection of the offer. This means that it is necessary to analyse what was proposed.
Seventhly, there is no general rule that the Calderbank offer must set out with specificity the basis for the offeror’s contention that the offeree should accept the compromise. Whether there is a need to do so depends upon a consideration of all of the circumstances existing at the time of the offer.
Eighthly, it is not necessary for the applicant for an indemnity costs order to establish matters which might be relevant to other, well-recognised, grounds for indemnity costs. Such conduct is not a pre-requisite for a finding that the rejection of the Calderbank offer was unreasonable.
Ninthly, an “all in” offer is permitted in a Calderbank offer.”[4]
[4]Ibid at [58]-[67].
Consideration
9UESL has the onus to demonstrate that SAS’s rejection of its offer was sufficiently unreasonable that the court should exercise its discretion to award costs on an indemnity basis rather than the more usual standard basis for part of the proceeding.
10The UESL offer was made after it had filed its defence and an affidavit of documents. To that extent, the parameters of the case were already established by the pleadings. While the case might have developed some further nuances later, its general scope was apparent. In particular, the defence articulated the different approach which UESL adopted to the construction of the parties’ agreement.
11The UESL offer was in clear terms and should have been readily understood by SAS.
12UESL gave SAS seven days from the date of the letter to consider the offer. While plainly this was a longer time than, say, 24-48 hours, I note that it was significantly less than the 14 days required as the minimum time in relation to offers of compromise made pursuant to Order 26 of the Rules.
13The offer specifically refers to UESL’s intent to seek indemnity costs if SAS rejects the offer and the result of the trial is less favourable to SAS than the terms of the offer.
14The offer invited SAS to discontinue the proceeding and bear its own costs. In practical terms, UESL invited SAS to abandon its claim. The benefit which the proposed compromise offered SAS was that UESL bore its own costs of the proceeding incurred to date and SAS avoided the risk of having to pay UESL’s costs of the whole proceeding, including from July 2020, on an indemnity basis. However, the proposal from UESL required SAS to relinquish its claim.
15The nature of the case meant that it was difficult to compromise. The proceeding was more in the nature of an “all or nothing” scenario than a proceeding where each party could give some ground and each walk away with some benefit.
16As to the prospects of success, I consider it a fair assessment of this case to say that the different approaches to interpretation which the parties adopted could only be ultimately determined by a judge. While I have found that UESL’s construction represented the better view, the SAS construction of the agreement was not baseless and without any proper foundation. To that extent, at the time the offer was made, SAS’s prospects were sufficiently arguable that it could not be said that SAS was unreasonable in pursuing the claim to judgement.
17In short, I find that SAS did not act unreasonably in rejecting the Calderbank offer put forward by UESL. I say this for several reasons. Firstly, if SAS accepted the offer, it constituted a total capitulation to UESL. Secondly, in circumstances where the SAS interpretation of the agreement had some foundation and an arguable basis, in my view, it did not act inappropriately in pursuing its claim to judgment. Thirdly, in circumstances where the offer was made in July for a trial beginning on 21 September, it was appropriate for SAS to have at least 14 days to consider the offer.
Conclusion
18For the reasons set out, I order that:
(a) the plaintiff’s claim is dismissed;
(b) the plaintiff pay the defendant’s costs of the proceeding, including reserved costs, such costs to be taxed on a standard basis in default of agreement.
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